Goldman Sachs sees India’s GDP growth falling to 5.9% in 2023 | The Financial Express

Goldman Sachs sees India’s GDP growth falling to 5.9% in 2023

“We forecast around 7% year-on-year growth in both consumption and investment with the risks to investment growth tilted to the upside, if manufacturing in India picks up, as ‘Make in India’ efforts come to fruition,” it said.

Goldman Sachs sees India’s GDP growth falling to 5.9% in 2023
Consumer price index-based inflation, on the other hand, will moderate from an average of 7% in 2022-23 to 5.6% in 2023-24.

India’s economic growth rate may fall to below 6% in calendar year 2023 but inflationary pressures could ease marginally, according to a new report by Goldman Sachs. The agency has pegged India’s GDP growth rate in 2023 at 5.9% from an estimated 6.9% in 2022, as the boost from the reopening fades and monetary tightening weighs down domestic demand.

For the fiscal year 2022-23, the investment bank hasn’t cut the GDP growth estimate for India, unlike many other agencies — the country’s economic expansion in the year has been pegged at 7.1%, marginally higher than 7% forecast earlier. The GDP expansion, however, would be significantly lower at 6% in 2023-24.

Consumer price index-based inflation, on the other hand, will moderate from an average of 7% in 2022-23 to 5.6% in 2023-24.

“We expect growth to be a tale of two halves in (calendar) 2023, with a slowdown in the first half as the reopening boost fades and monetary tightening weighs on domestic demand,” Goldman Sachs economists said in the India 2023 Outlook. It, however, expects growth to re-accelerate in the second half as global growth recovers, the net exports drag declines and the investment the cycle picks up.

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It also estimates that the government will continue its focus on capital spending, and sees signs of the nascent investment recovery continuing. “We forecast around 7% year-on-year growth in both consumption and investment with the risks to investment growth tilted to the upside, if manufacturing in India picks up, as ‘Make in India’ efforts come to fruition,” it said.

The agency has also highlighted conducive conditions for an investment cycle recovery. De-leveraging by manufacturing companies, recovery in capacity utilisation, the government’s focus on capital expenditure and a well-capitalised banking system are four key factors that are expected to help in a cyclical revival in the corporate capex cycle.

The Reserve Bank of India has pegged real GDP growth at 7% in 2022-23. In the Monetary Policy Report for September 2022, it has projected CPI inflation to average 6.7% in 2022-23 and at 5.2% in 2023-24. Goldman Sachs expects headline CPI inflation to ease but remain above the RBI’s tolerance limit of 6% in 2023.

“We forecast headline CPI inflation to decrease to 6.1% year-on-year (average) in 2023 from an estimated 6.8% in 2022, as we expect food prices to remain contained on the back of active intervention by the government through subsidies and other measures,” it said. It has forecast the current account deficit at $ 124 billion (3.5% of GDP) in 2023, due to slower global growth, a relatively resilient domestic demand recovery and elevated oil prices.

Further, it expects the RBI to hike the repo rate by 50 basis points in the December 2022 policy meeting and by another 35 basis points in February, due to upside risks to core services inflation as confirmed in the most recent inflation data, and India running negative real rates. It has forecast only 35 basis point of rate hikes in 2023, which would take the repo rate to 6.75% by February 2023.

However, if inflation pans out as per its forecasts, and reaches 5.3% y-o-y (average) by the fourth quarter, it has forecast the RBI to cut the policy repo rate by 25 basis point in the fourth quarter of 2023. The Monetary Policy Committee of the RBI will hold its next meeting on December 7.

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First published on: 24-11-2022 at 02:30 IST